LSE economists: file sharing isn't killing music industry, but copyright enforcement will

Creative Destruction and Copyright Protection, a paper by the London School of Economics' Bart Cammaerts and Bingchun Meng, is an eye-opening look at the economics of file-sharing and music. The authors argue that an overall decline in consumer entertainment spending is to blame for the music industry's downturn, supporting their assertion with (for example), research showing that entertainment spending declined by 40 percent in households that didn't own computers (who probably weren't downloading!) over the period of overall decline for the industry.

Their conclusion is that copyright enforcement won't bring back consumer spending on music -- but it will strangle new business models built on file-sharing, robbing the next generation of musicians without paying the current generation. The authors propose several business models, including allowing ISPs to buy unlimited, technology-neutral licenses on behalf of their users.

The authors of the study acknowledge that these alternative models are not going to impress SONY and EMI. "Compared to the value of the mainstream music market, dominated by the 'big four', these are relatively marginal activities," they observe.

But they may become less marginal very soon. With world mobile data traffic set to explode by a factor of 26 by 2015, and with most people in the Middle East, Sub-Saharan Africa, and South/Southeast Asia expected to link to the mobile 'Net before they get electricity, file sharing could be poised for a second great leap forward, whether Big Content approves of it or not.

These millions of new Netizens are not going to have the money to buy digital music files. They're going to use BitTorrent. That will put more and more pressure on governments to decide whether they want to criminalize a huge portion of humanity, or encourage the market to adapt to the new "ephemeral" models described by this study and others.

Did file-sharing cause recording industry collapse? Economists say no

• [mikedt]

  I’ve always argued that the decline in music spending is due to the dizzying array of entertainment products people can purchase today. When I was in college video games didn’t exist, dvds didn’t exist and nobody was buying VHS tapes at the time since movies sold for absurd amounts – like $80 a movie. I therefore bought a lot of music. Complete albums mind you since the 45 market was dead at this point and electronic singles didn’t exist yet.

  • [cymk]

    I have to agree, every day I see new things to buy. You have the movie industry, the music industry, the game industry and the computer industry (and probably more) all competing for the same consumer dollars.

    Also, imho, the quality of music (primarily mainstream) released in the last 10 years has been declining. The only reason file-sharing is being targeted, is its a soft target; easy to demonize.

• [bcsizemo]

  I’m more blown away by this:

  with most people in the Middle East, Sub-Saharan Africa, and South/Southeast Asia expected to link to the mobile ‘Net before they get electricity

  Anyone else see a problem with that?
  (Not talking about the logical one, of how they charge their phones.)

  • [Fang Xianfu]

    Well, yes, obviously it’d be great if we could give them all electricity. But it’s notoriously hard to build infrastructure in these places because of, among other things, lack of roads, local and national corruption, volatile or unpredictable governments, the threat of violence or revolution, the general inability to get these risks underwritten, etc etc.

    It’s much simpler to throw up a few radio antennas than it is to run electrical cable to every village in a country, let alone every house. You need the power-plants and the heavy-duty cable, the switching stations, the transformers, etc etc. And all that’s before you make $1. Mobile networks suffer from many of the same problems, but it’s at least a bit more modular and you can start making money straight away.

    I do wonder if it’s a bit fallacious to jump from “they’ll have mobile internet” to “they’ll bittorrent on it” though. Mobile networks in the developed world go to great lengths to try to stop you from tethering and downloading a lot of stuff. Won’t they do the same in less-developed countries?

  • [IronEdithKidd]

    Homebrew wind power? Cheap solar chargers?

• [Roger Wilco]

  The Music Industry is Dead!
  Long Live Music!

  I must remember to get that printed on a t-shirt sometime soon.

• [Anonymous]

  Yes, it would be great if musicians, artists and other cultural workers could be paid directly in some kind of “rent and food” credits.

  Or money.

  People paying for our work in cash would be fine too.

  Everyone complains about the actions of big business, but /everyone/ in the “chain of revenue” is affected by fewer purchases of cultural products.

• [shawnhcorey]

  It doesn’t matter how many reports are generated showing why music sales are declining or how to get more sales. It is becoming apparent that the music labels want to use copyright and DRM to gain a world-wide monopoly on music. They’re just going to ignore anything that might interfere with their dreams.

  • [straponego]

    Close, a world-wide monopoly on music is not enough for the *AA. They want it to be illegal for anybody to not give them as much money as the *AA deems sufficient, whether or not the person uses any products from members of the *AA.

    This is why, for example, they want fees on Internet and media, but these fees grant no license to their products. And they want fees from any venue that hosts live performances, even if the performers play only their own music. Now Obama is pushing with a ubiquitous warrantless wiretap scheme so they can charge you a nickel any time you discuss a TV show on the phone. When it becomes possible to read thoughts, they will want want a penny each time you remember a song.

    “That will put more and more pressure on governments to decide whether they want to criminalize a huge portion of humanity…” The US government has decided that that is exactly what it wants.

  • [Boba Fett Diop]

    They also never got off the 15-year high that was charging everyone for things they had already purchased before (replacing your record/tape collection with CDs). All their projections were based on being able to do this again with electronic media.

• [Anonymous]

  Not everyone from LSE is an economist. These two academics specialise in media issues and belong to the “Media and Communications” dept. Both of them do not have higher education in economics.

  By framing them as economists, you would be giving readers an impression that the report and their argument are based on economic theories when they are not.

• [AskJarv]

  Just to play devil’s advocate (as I often like to do)- so what’s being proposed is a generic “arts license” for using ISPs? I fail to see how that works, or is fair- you’re charging me for bits which I don’t consume to account for people who might consume them. I might “create” on the web and conume relatively little- but I’ll be charged just as much as those who only consume and never give back.
  And whilst I don’t believe that “big budget” = “good movie” for example, I appreciate that some things need large amounts of money to happen – and a ISP Media charge building a big old slush fund could never be as fair as a system whereby we vote with our money by giving it directly to the media creator. If we gave all our money to the “Misc Cars Incorporated” to distribute to all the car manufacturers, why would Ferrari continue to give us amazing cars when they get no more money for their time or efforts?
  I know the “new world economy” is asking a lot of questions about flattening the price of everything, but I don’t think ISP taxes are the way forward- money should definitely go to the creator from the consumer.
  To steal a Cory concept, Whuffie (street-credits), wouldn’t be worth as much if you had to give to everyone a fair share. What we really need, is a reward scheme greater than money IMHO- understand what creators want and allow people to give that to them as a reward for creating something we want to consume- perhaps every creator/artist could put up an Amazon Wishlist and we donate money to help them get what they want :-)

• [Cocomaan]

  I’m glad that you posted this. The accepted narrative by the industries with products protected by copyright law is, of course, absent any empirical evidence.

  Revenues going down must mean terrorist copy protection violators are doing it!

• [Anonymous]

  That’s bull shit. Everyone should have a computer/laptop, or atleast one in the library where they can go get free access to the internet. The music industry has no clue what the audience/fans/people want to hear.
  The reason why I don’t buy music is because a lot of the music out right now is garbage. A lot of them are not worth a penny. I aleast like 2 songs from an album, but that doesn’t mean I would buy the full album. What is missing in todays music is the passion and the soul. Most lyrics are whack, the melody hooks are boring, and the beats are over produce. Music today is often way too repetitive and, in fact, tends to send a person into a trance like state. What happen to real R&B and Soul music with passion and soul? Everything now days sound the same beside Alternative Rock music and Country Music.

• [LaHaine]

  LSE? Isn’t that the school that is selling degrees to dictators?

• [dirtyid]

  People who do not have computers in this day and age are likely the same without the budget for entertainment. Ultimately, the music industry is responsible for it’s own demise, file sharing is merely delivering the death blow. Pretending it has no affect seems disingenuous.

• [jBroward]

  The Obama administration hasn’t done anything more than send recommendations for congress… however… if those recommendations do become law it could really change have some long lasting effects.. some good… some very bad. I understand wanting to protect something that is your creation… but how to go about it is very important and the repercussions if this white paper from the Obama administrations becomes law are scary. I just read a post from some “music expert” named Moses Avalon (mosesavalon.com/mosesblog) about how far reaching those simple “illegal streaming” recommendations would go… and the fact (which he seems to back up with other experts) is that it means a massive overhaul of all sites that promote peer 2 peer file sharing and federal investigations into sites that even promote and encourage file sharing! If this law goes into effect as written… there goes the first amendment! Scary stuff… there is a huge massively heated copyright debate happening in the comments on Torrentfreak

• [Anonymous]

  Suggesting that only families who can afford computers are also able to afford to have a budget for entertainment is what’s disingenuous. Data please?